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It’s no big secret that we are in the middle of a retirement crisis. An entire generation of Americans are about to retire with little or no assets to support them. Many of them will not even have the option of continuing to work for either health or job related reasons.

Only fourteen percent of Americans surveyed by Employee Benefits Research Institute (EBRI) are very confident that they will have enough money to live comfortably throughout their retirement years, while half are not too confident or not at all confident that they will have enough. Not surprisingly, large debt overhangs concern many of the respondents.

Another survey by Merrill Lynch found a large number of people have shifted their projected retirement date to as late as 85 or “whenever they have enough.” Having failed to plan for retirement at age 65 they will presumably fail to plan for 85 as well, the rest may very well never have enough.

Of course, the overarching problem is that across the entire American public, no one is saving anything. Savings rates are grossly inadequate to provide for retirement, even if that was the single objective a family had. The EBRI study found that over half of workers with any savings at all report that they have less than $25,000 put away. Given that amount, most advisors would be very uncomfortable withdrawing more than $1,250 per year to support your lavish lifestyle.

Plainly put, most Americans have forgotten how to save, or even consider that it might be a good idea. It wasn’t always like that. We used to save. But for more than 30 years we have been on a binge. Beginning about 1982 savings rates fell from about 12% of disposable personal income to close to zero as reported by the U.S. Department of Commerce.

Importantly, note that these figures include both debt reduction and contributions to pension plans and 401(k)s. While savings rates typically spike during recessions, there is every indication that we have reverted to our old wasteful ways after being temporarily scared straight in 2008 and 2009.

Our bad behavior spending spree was gleefully enabled by a wallet full of credit cards and bankers ever so happy to endlessly re-finance your house for amounts exceeding its market value.

As the Baby Boomer demographic hump inexorably inched its way toward retirement their savings rate steadily fell. So, it should come as no surprise that age 65 has become a fantasy retirement date for an entire generation. They have chosen to think about it later until it’s too late to do anything about it.

Strangely, while many Americans report that retirement is an important economic concern, very few have even bothered to compute how much capital they might need to finance their life style at retirement, or how much they would have to save to get there.

Yet, with an Internet hosting uncounted free retirement planning calculators, few avail themselves of the service. Interestingly, of those that have made a calculation the average savings rate and accumulation are more than double those that haven’t.

Retirement planning is not rocket science. There are only three factors that determine if you will ever be able to retire: How much you save, how long you save, and what rate of return you get on your savings. Notice that two of the three elements are directly under your control.

Savings doesn’t happen by accident. You can attempt to budget savings, but that rarely works. There is always another iPad to buy, and nothing is likely to be there at the end of the month. The most effective plan is to save first. Put your savings on autopilot by saving in your 401(k), IRA, or brokerage account before it hits your pocket. If you segregate your retirement funds before you are tempted to spend them, there might actually be something there when you need it.

You can actually have a secure retirement, but you are responsible to make it happen. You will sink or swim on your own.

I wouldn’t touch an ETN with a ten-foot pole, and perhaps you shouldn’t either.  Let me tell you why.

An ETN is not an ETF although they share the first two words and letters in their acronyms.: “Exchange Traded” and “ET.”  Other than that, they are from different universes. Don’t confuse the two.

There is a lot to love about ETFs for investment advisers seeking pure market exposure at the lowest possible cost with the widest diversification in a particular part of the world’s market.  They offer transparency, liquidity, efficiency, economy and they are marked to market whenever trading is open.  You want the S&P 500 and you get the SPY.  How about long Treasuries? The TLT is your fund.

An investor owns his little share of a market basket of stocks in a registered, regulated, segregated, audited, standardized instrument. Just like the open end mutual funds we are all familiar with, should the sponsoring company fail, the assets are protected in the separate account and not subject to claims of the sponsoring company’s creditors. In many of the world’s most liquid markets, they are the best game in town. What’s not to like?

With all the above advantages, ETFs have rightly rapidly gained wide acceptance. Well known issuers include iShares, Vanguard, Schwab, Fidelity, Powershares, Northern Trust, Russell, Wisdom Tree, and First Trust to name a few.

With the evolution and acceptance of ETFs have come evolutions like leveraged, inverse, and managed ETFs.  As purely passive investors, my enthusiasm for these issues is virtually nil. It’s still and always necessary to pick and choose investments that meet your particular needs and criteria.

An exchange traded note (ETN), on the other hand, is simply an IOU from a bank, more correctly a hedge fund formerly known as a bank. The investor doesn’t own anything. There is no segregated account of assets. There is no structure or firewall between the IOU and the issuer’s general assets. The investor is just an unsecured creditor of the bank.

The ETN is not a registered security.  Even if it’s issued by a bank, it’s not insured by the FDIC as a deposit or CD might be.  It’s a derivative whose value is loosely determined by changes in an index less fees.

That was enough for us at Investor Solutions. As a fiduciary, we have a prime obligation to diversify away any risk we can. Being an unsecured creditor of a bank is a giant undiversified credit risk on a single entity. So, we crossed them off our list and pretty much forgot about them. Given our later experience in 2008 and 2009 that policy stood us well.

Today there is not a bank or brokerage in the universe whose credit I would trust. You know that they remain undercapitalized and subject to the same downside financial and moral risks we enjoyed in 2008 and 2009. Remember those fun days when even  small businesses were jumping through hoops to break up their deposits into FDIC insured chunks? Would you like to bet the farm that it couldn’t happen again? Not me!

If you don’t think it can happen, just ask holders of EOH Opta Lehman Agriculture Pure Beta ETN, PPE Opta S&P Private Equity Notes 2038 ETN, and RAW Opte Lehman Commodity Index ETN how they liked the Lehman Brothers Ride. Those three funds were listed by Lehman on February 20, 2008. The rest, as they say, is history. When Barclays acquired some of the trading assets from Lehman, they specifically disavowed responsibility for the ETNs. Trading was suspended and the funds delisted.

I take some comfort in regulated securities that have elementary checks and balances and structures designed to protect investors. ETFs are regulated, have boards of directors, auditors and a fairly straightforward and standardized structure.

ETNs are individually drafted, unregulated IOUs designed by organizations with murky financials and proven track record of unscrupulous behavior. Given their highly complex offerings and non standard structures, a sophisticated issuer has plenty of opportunities to enhance their offering at your expense.  Not surprisingly, some do.

Given that an ETN is actually a badly needed contribution to the bank’s capital it’s particularly annoying to find one of them gouging the investor on fees.

Almost all asset classes that are offered as ETNs can be found as ETFs. A very few ETNs in alternative asset classes may claim better tax treatment than a ETF, but we find that most investors could hide a less tax efficient structure inside their qualified plans or IRS to negate any tax advantage the ETN might claim.

I suppose if you were the one person on the planet that understood big bank balance sheets, and if you cared to track their financial condition on a second by second basis, you might want to consider an ETN. No matter how attractive the marketing literature, we are not buying into any unregulated security or undiversified credit risk.

The recently floated proposal by the U.S. Securities and Exchange Commission to allow money market funds to “break the buck” and restrict liquidity under certain circumstances would be a disaster.

Money market funds are one of the most important innovations in finance of the last 40 years. Once Merrill Lynch introduced their Cash Management Accounts (CMAs) in 1977 there was no going back.

Over time, banks responded with NOW accounts and finally money market funds emerged. Today they hold approximately $2.6 trillion, accounting for about 9% of all mutual fund assets, clearly demonstrating both market need and acceptance.

Because instruments with a duration of less than 180 days can be held at face value, money market funds can maintain a constant net asset value (NAV), even though the underlying assets vary slightly as they march toward maturity and endure interest rate fluctuations.

As long as funds maintain their shadow (the actual) NAV in a range of $0.9950 to 1.0050, money market funds are allowed by SEC regulation to round the effective NAV to $1.00, allowing for transactions at $1.00. This allows money market funds to report a stable NAV, despite the small variations in the shadow NAV (which reflects market values).

If a money market fund’s shadow NAV moves outside the allowable range of $0.9950 to $1.0050, the fund must take immediate corrective actions to bring the shadow NAV back inside the range, or discontinue using amortized cost accounting.

Investors have come to rely on a constant dollar value with almost instant liquidity as a “safe” place to keep their cash. They are such a key part of our financial system that it’s hard to remember a time without money market funds or a world without them.

Since inception the funds have been a giant cash cow for their distributors. Especially during times of higher interest rates investors happily traded off fat fund fees for the perceived safety and convenience of the funds. Fees for “sweep” accounts at brokerage firms like Charles Schwab, Fidelity, Merrill Lynch and Citibank were especially rapacious and contributed mightily to the brokerage houses’ bottom lines.

Most customers never noticed, but the savviest of them quickly learned to keep anything above their trivial cash needs in institutional money market funds which offered lower operating expenses and higher yields. However, in today’s near zero rate environment fees are being squeezed.

If investors respond to anything, it’s yield. So, even tiny differentials will result in a torrent of new assets for the funds. Enter moral hazard. Investors clearly don’t want to do their homework on the risk of the underlying assets. The fund with the highest yield wins regardless of the quality of the underlying investments. So the incentives to stretch for yield are enormous.

While there are quality constraints on the funds, money market fund managers began to juice their yields by including higher risk assets such as commercial paper, repurchase agreements and short term bonds.  So, while money market funds may look the same to the great unwashed investor, under the hood they are not.

All this worked quite nicely until September 2008 when the Reserve Primary Fund in New York said it cut its share price to 97 cents after marking down the value of $785 million in Lehman Bros. debt securities, following the brokerage’s filing for bankruptcy court protection on Monday, September 15, 2008. The resulting run on the bank caused the U.S. government to institute a temporary insurance program on September 16, 2008. That program ended a year later, and the government is understandably in no hurry to reenter the business.

Investors of all sizes need an absolutely safe, fully guaranteed place to keep their liquid assets. I don’t care if you are saving up $300,000 for a new sailboat, or just sold your company for $300 million, you want to be able to draw on it on an instant’s notice without worrying about market fluctuations, potential loss, or liquidity constraints. Unless I’m ready to establish my own account with the U.S. Treasury to buy T-Bills, my options for this important need are fairly limited.

At best, current alternatives are inconvenient. For instance, I’m on the board of a local yacht club that must maintain cash reserves against potential hurricane damage. The manager of the club wastes valuable time and energy maintaining a portfolio of CD’s fully covered by FDIC.

The SEC proposal converts money market funds into short term bond funds. They are far from a perfect substitute. If that’s what I wanted, I could find plenty of them.

In lieu of the SEC proposal I believe that if necessary until interest rates return to a “normal range,” a large number of investors would accept a zero yield and even pay reasonable account fees if necessary in order to maintain the safety, convenience, and liquidity of the traditional money market fund. Such funds could be restricted to invest in only U.S. government guaranteed issues and may even have to post reserves, eliminating the need for government insurance and preserving a necessary fixture of the financial system.

Kraft settles 401(k) excessive fee suit for $9.5 million. Plaintiffs claimed that the plan fiduciaries allowed excessive fees for funds that consistently underperformed their indexes. The suit had dragged on for five years.

Kraft had previously eliminated active management from their defined benefit plan due to under-performance but continued with active funds in the 401(k) plan.

Note that last July, U.S. District Judge Ruben Castillo, of the U.S. District Court for the Northern District of Illinois concluded that a jury could find that “a reasonably prudent business person with the interests of all the beneficiaries at heart” would have banned actively managed funds from their 401(k) plan as they had done in the Kraft defined benefit plan because they had concluded that active funds did not consistently outperform index managers.

Kraft never had to have this problem. A fund lineup of index funds would have had better performance, lower costs and eliminated another common fiduciary complaint about undisclosed fee sharing. See our article: The Fiduciary’s Default Investment Choice at: http://bit.ly/wkKOAZ

The knee jerk decision to claim your Social Security benefits at age 62 may be one of the worst decisions you could make in retirement. Depending on your own family circumstances a more sophisticated strategy could improve your lifetime benefits dramatically. Take the time and effort to get it right, or consult with a professional financial advisor who can show you the options. Click here to read more.

Many Americans have saved less than 7% of what they feel they will need to fund their retirement. Faced with life expectancies stretching into their 90s and little in the way of a nest egg,  lots of them are making the decision to delay retirement till much later in life. Click here to read more.

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Americans racked up $950 Billion in student loan debt!! Don’t bite off more then you can chew.  http://bloom.bg/uq1hk9

Frank hosts New World Symphony musicians for a day. http://bit.ly/sNOTzp

IRS increase income phaseouts for Roth IRA contributions.Individuals:$110,000-$125,000, Joint Filer:$173,000-$183,000 http://1.usa.gov/vHp1sf